The U.K. Serious Fraud Office this month won a victory in a landmark decision by the English High Court of Justice, limiting the application of litigation privilege in criminal investigations.
In the case, Director of the Serious Fraud Office v. Eurasian Natural Resources Corporation, Justice Andrews found in favor of the SFO, which had challenged an assertion made by global natural resources company ENRC that certain documents generated in the context of an internal investigation were privileged and, thus, did not need to be handed over to prosecutors.
In 2011, ENRC launched an internal investigation in response to allegations of potential fraud, bribery, and corruption in Kazakhstan and Africa. In 2013, the SFO commenced a criminal investigation into these activities. As part of its investigation, the SFO issued notices to ENRC to produce documents relevant to the investigation, exercising its powers under section 2(3) of the Criminal Justice Act.
Because the SFO’s powers of compulsion don’t extend to documents subject to litigation privilege, however, the ENRC argued that the following four categories of documents were privileged and refused to produce them:
Category 1: Interview notes taken by ENRC’s external legal counsel of numerous individuals, including former and current employees of ENRC and its subsidiaries and suppliers, relating to the events being investigated.
Category 2: Documents generated by forensic accountants as part of a books and records review they carried out to identify systems and controls weaknesses and potential improvements.
Category 3: Documents indicating or containing the factual evidence presented by ENRC’s external legal counsel to ENRC’s board in relation to the investigation.
Category 4: Documents referred to in a letter sent to the SFO, including forensic accountant materials outlined in Category 2 and two e-mails between ENRC’s head of M&A and senior ENRC executives.
In the decision, Justice Andrews held that privilege applied only to the Category 3 documents, which were subject to legal advice privilege (different than litigation privilege). In that way, the judgment adopted the already established principle that legal advice privilege applies to confidential communications between lawyers in their professional capacity and their clients concerning the provision of legal advice.
Justice Andrews rejected all other claims of privilege made by ENRC. Some of the more important findings arising from Justice Andrews decision include:
Litigation privilege does not apply to documents prepared for a criminal investigation, as opposed to a prosecution;
Litigation privilege does not apply to documents prepared for the dominant purpose of avoiding prosecution, as opposed to preparing a defence brief;
Legal advice privilege does not apply to the records of a fact-finding or evidence-gathering process, since these work products don’t’ constitute legal advice; and
Legal advice privilege does not apply to lawyers’ notes and other working papers.
The decision has garnered lots of attention from those in the legal community. “Although a first instance decision that does not bind higher courts in England and Wales, the judgment could dramatically impact the practice of internal investigations in the U.K., particularly those that are undertaken to address whistleblower allegations or compliance concerns absent a formal inquiry from an external regulator,” law firm Skadden wrote in a client alert.
“As a result, if and until an appeal is granted and the decision overturned, companies should be careful when planning internal investigation activity from the outset and seek advice from experienced counsel as to the way in which investigations could be structured,” the Skadden alert stated.
In another client alert, law firm CMS Cameron McKenna recommended the following measures companies should take in response to the judgement when conducting a fact-finding investigation into whether they may have a liability risk:
Identify and record in writing who will be responsible for seeking legal advice and for what purpose. “This will assist in a later claim to privilege by identifying the ‘client’ and the reason for seeking the lawyers’ work,” the client alert stated.
Consider why the lawyers are being instructed and what privilege may be relevant in that context, if any. “If only certain elements of the work are likely to be privileged, consider delineating them separately,” the client alert stated.
Consider carefully the approach to interviewing individuals and what record will be taken, if any, and by whom.
If a record will be taken, consider whether it should be a verbatim or similar note of the interview, which is unlikely to be privileged unless litigation privilege applies, or can be recorded as part of a wider note of advice in which the record and the advice cannot be easily separated.
Consistently repeat the process of considering what privilege may apply as the work/matter develops and whether at any given stage the privilege claim may have evolved. Record any changes of view and why it has changed.
Where those involved in seeking/obtaining the advice are due to leave the company, consider obtaining a statement from them before they do so that records their understanding and assessment of the privilege available in respect of the work product.
The ENRC decision follows closely behind The RBS Rights Issue Litigation, which applied a restricted view of who a “client” is for the purpose of legal advice privilege. “These two decisions taken together have significantly limited the legal professional privilege that was previously understood to apply to work undertaken by lawyers in the conduct of internal investigations,” Jeremy Summers of Osborne Clarke wrote in a client alert.
“Those contemplating an investigation will need to proceed with great caution,” Summers added. “Perhaps it is, for the time being, prudent to anticipate that the product of any investigation will fall to be disclosed to an enforcement agency or regulator.”
ENRC has sought to appeal the decision.